John B. Sanfilippo & Son Q3 2023 Earnings Call Transcript

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Provided by Quartr
May 3, 2023

There are 3 speakers on the call.

Operator

Good day, and welcome to the John B. Sanfilippo and Sons Inc. 3rd Quarter Fiscal 2023 Operating Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

Instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Jeffrey Sanfilippo, CEO. You may begin.

Speaker 1

Thank you. Good morning, everyone, and welcome to our 2023 Third Quarter Earnings Conference Call. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO and Mike Finn, our Vice President and Corporate Controller. We may make some forward looking statements today.

Speaker 1

These statements are based on our current expectations and involve certain risks and uncertainties. The factors that could negatively impact results are explained in the various SEC filings that we have made, including Forms 10 ks and 10 Q. We encourage you to refer to the filings to learn more about these risks and uncertainties that are inherent in our business. I am proud to report record diluted earnings per share for our 3rd quarter and our 2nd consecutive quarter of double digit diluted earnings per share growth. This strong performance was mainly driven by volume growth in all three of our distribution channels As our net sales increased by $20,000,000 or 9.1 percent compared to last year's Q3.

Speaker 1

I'm especially proud of this accomplishment given the ongoing challenging operating and inflationary environment. Our Board of Directors met yesterday and approved $1.50 per share special dividend, Reinforcing our goal of creating long term shareholder value by returning capital to our shareholders. The dividend will be paid June 22, 2023 to stockholders of record as of June 1, 2023. As announced last quarter, we began to ship our new product line of private brand nutrition bars to mass merchandising retailer during the Q3 and anticipate shipping private brand nutrition bars to additional customers during the Q4. We have received favorable feedback from our retail partners and expect to gain additional nutrition from our customers in subsequent quarters.

Speaker 1

As we look ahead to the Q4 and to fiscal 2024, We are focused on executing our long range plan to accelerate volume growth and deliver sustainable earnings growth. We will continue to optimize our cost structure, focus on portfolio optimization, diversify our product offerings and increased flexibility as we continue to respond to the ongoing macroeconomic volatility. Our strong operating results Would not be possible without the dedication of our talented employees who continue to exceed expectations and create value for our customers and shareholders. At this time last year, we're just completing our pricing actions to help offset inflationary input costs that most companies face in 2022. And in Q3 last year, we were also overcoming supply chain challenges.

Speaker 1

We are in a much better supply and freight environment today, We are monitoring consumer behavior and demand trends in all of our categories as retail prices have stabilized. We created a long range plan that defines our future growth priorities. And over the past several years, The company has made significant investments in our manufacturing capabilities to support those growth strategies. The peanut butter line in our Bainbridge, Georgia facility was upgraded to enhance the quality of our product portfolio and expand capacity. As a result, we've increased our peanut butter business with several key customers in our Consumer and Foodservice segments.

Speaker 1

The most significant equipment investment and new R and D, Engineering, Operations, Procurement, Quality, Tech Services, Marketing and sales departments has transformed the company. JVSS is executing our growth strategy to diversify beyond snack and recipe nuts, And our entry into the energy bar category is a great start, and we are excited about the opportunities ahead to grow this business segment. As I mentioned last quarter, the snack bar category is around $8,000,000,000 in size across omni channels and $6,600,000,000 in IRI new loan and consistently grew for over a decade until the pandemic started. Post COVID, it has bounced back with strong dollar growth this past year. 1 of the white spaces in the category is high quality retailer brand offerings, And we believe JBSS can become the partner of choice in the nutrition bar segment for retailer brands given our strong track record of quality, Service and Innovation.

Speaker 1

We also announced the acquisition of the Just the Cheese brand completed during the Q2 of fiscal 2023. We are excited to add the brand to our portfolio as it complements our current brand offerings in the snack category. And the acquired production capabilities will help accelerate growth with our private brand and foodservice customers. The Chief category is an exciting new business segment for JBSS. We recently gained new distribution for this brand in our consumer channel with shipments beginning at the end of our Q4.

Speaker 1

There are also plans for this new product capability to develop inclusions and mixes to differentiate our brand and to offer to our private brand partners. In addition to entering new product categories, Our long range growth plan also includes transforming our branded portfolio. I mentioned on our last call the relaunching and rebranding of our Orchard Valley Harvest product portfolio. The new products and packaging are just entering the market now, And we are focused on expanding distribution, building brand awareness and trial with innovative marketing programs and allocating a portion of the sales to support our partner, Conscious Alliance, to help end child hunger. We will report more on our OVH performance in future earnings calls.

Speaker 1

At this time, I'll turn the call over to Frank to discuss our financial performance.

Speaker 2

Thank you, Jeffrey. Starting with the income segment, net sales for the Q3 of fiscal 2023 increased 9.1% $238,500,000 compared to net sales of $218,600,000 for the Q3 of fiscal 2022. The increase in net sales was attributable to a 5.0% increase in sales volume, which is defined as pounds sold to customers and a 3.9% increase in weighted average sales price per pound. The increase in the weighted average selling price was mainly attributable to the normalization of selling prices with treatment acquisition costs, as well as higher commodity acquisition costs for peanuts and dried fruit. Sales volume increased partially offset by a 0.6% decrease in sales volume for branded products.

Speaker 2

New private brand peanut bar business At a mass merchandising retailer and increased peanut butter distribution at a grocery store retailer were substantially offset by lost distribution with a private brand grocery customer that occurred in the Q4 of fiscal 2022. Excluding this loss distribution, Private brand sales volume grew by 4.7%. The sales volume decreased for our branded products, which includes Fisher recipe nuts, Fisher snack nuts, Orchard Valley Harvest and Southern Saddle Nuts was mainly attributable to a 15.7% decrease The sales volume of Fisher snack comps due to decreased merchandising activity at a major customer and a seasonal rotation at a club store is not repeating the current quarter. This decrease was significantly offset by a 20.8% increase in sales volume of Orchard Valley Harvest. Due to the timing of sales by major customers in the non food sector, we delayed their orders from the previous quarter and increased promotional support at that same restaurant.

Speaker 2

Sales volume increased 18.9% in the commercial ingredients channel due to a 30.5% increase in sales volume to foodservice customers due to increased peanut bar distribution at existing customers. Sales volumes increased 7.5% in the contract packaging distribution channel, primarily due to increased unit and cash distribution and an existing customer. 3rd quarter gross profit margin as a percentage of net sales increased to 20.9 compared 18% for the Q3 of fiscal 2022 as margins have returned to more normalized levels. The prior comparable quarter was negatively impacted by higher than anticipated commodity acquisition costs and other inflationary cost increases. Gross profit increased $10,400,000 or 26.3 percent due to the same reasons contributing consumer insight research and related consulting expenses, as well as a one time gain in the comparable quarter, which has not reoccurred in the current quarter.

Speaker 2

These increases were partially offset by a decrease in credit expense. Total operating expenses for the Current Q3 increased 11.7 percent of net sales from 10.1% for last year's Q3 due to reasons I just cited. Interest expense for the current Q3 increased to $600,000 from $500,000 for the Q3 of fiscal 2022, primarily due to higher weighted average interest rates. Net income for the Q3 of fiscal 2023 was $15,700,000 or $1.35 per diluted share compared to 11,900,000 or $1.02 per diluted share for the Q3 of fiscal 2022. Now taking a look at inventory.

Speaker 2

The total value of inventories on hand at the end of the current Q3 decreased $20,800,000 or 9.8 percent Part of the end of the Q3 of fiscal 2022. The decrease in the value of inventories was primarily due to Lower commodity acquisition costs for all major tree nuts, partially offset by higher acquisition costs for peanuts and other raw materials and higher on hand quantities of raw materials other raw materials and cash used. The weighted average cost Per pound of raw nuts and drive thru input stock on hand at the end of the current quarter decreased 24.1% compared to the weighted average Cost per pound at the end of the Q3 of fiscal 2022 and was driven by lower acquisition costs for our major treatments. Moving on to year to date results. Net sales for the 1st 3 quarters of the current year increased 9.6% to 765,500,000 recorded for the 1st 3 quarters of fiscal 2022.

Speaker 2

The increase in net sales was primarily attributable to An 8.8% increase in the weighted average selling price per pound and a 0.8% increase in sales volume. The sales volume increases in the commercial ingredients channel and contract packaging channels were offset by slight sales volume declines in the consumer channel. Gross profit margin was unchanged at 20.5%. Total operating expenses for the current year to date period increased $7,800,000 at $88,200,000 The increase in total operating expenses was mainly due to increases in incentive based with equity compensation expense and sales broker commission expenses. In addition, a non reoccurring gain of approximately $2,300,000 in the sale of our Garysburg, North Carolina facility, which occurred in the Q1 of fiscal 2022 also contributed to the overall increase.

Speaker 2

These increases were partially offset by decreases in advertising spend and freight expense. Net income for the 1st 3 quarters of fiscal 2023 was $48,200,000 or $4.14 per diluted share, We reported net income of $44,400,000 or $3.83 per diluted share for the 1st 3 quarters of fiscal 2022. Please refer to our 10 Q, which was filed yesterday for additional details regarding our financial performance for our Q3 fiscal 2023. Now I will turn the call over to Jarke Tsefilippo to provide additional comments on our operating results for Q3 fiscal 2023 and discuss category trends.

Speaker 1

Great. Thanks, Frank. Appreciate the financial updates. I'd like to now share some category and brand results with you for the quarter. As always, the market information I'll be referring to is IRI reported data.

Speaker 1

And for today, it is the period ending March 26, 2023. When I refer to Q3, I'm referring to 13 weeks for the quarter ending March 26. References to changes in volume or price are versus the Corresponding period 1 year ago, we look at the category of IRI's total U. S. Definition, which includes food, drug, mass, Walmart, military and other outlets, unless otherwise specified.

Speaker 1

And when we discuss pricing, we are referring to average price per pound. Breakouts of the recipe, snack and produce nut segments are based on our custom definitions developed in conjunction with IRi. And the term velocity refers to the sales per point of distribution. First, the total nut and trail mix category was flat in dollars and down 2% in pound volume in Q3. This is actually slightly better pound rate than we saw last quarter, while retail dollars slightly declined.

Speaker 1

All segments continued to decline in pound volume in Q3, while trail mix and snap nuts grew dollars. Overall, prices across the category were up in Q3 versus the prior year 3%. Pricing has started to moderate across segments. For references, prices were up 5.3% in just Q2 of this year. Now we'll cover each segment in more depth, starting with Recipe Nuts.

Speaker 1

The Rusty Nuts segment was down 1% in dollar sales and down 3% in pound sales. This is Slightly worse dollar performance than we saw in Q2, but better pound performance. Prices of recipe nuts were up 2.1% versus last year. Price increases have moderated since the beginning of our fiscal year. Our Fisher brand had another successful quarter, Growing 20% in dollars and 21% in pounds.

Speaker 1

Fisher's performance resulted in growing dollar share 2.9 points and Fisher remains the branded leader. Fisher's performance was driven primarily by increased distribution and velocity in the mass channel. Now let me turn to the SnapNet segment. In Q3, the SnapNet segment was up 1% in dollar sales And down 1% in pound sales. This is slightly better than the performance we saw in Q2.

Speaker 1

Like we saw in recipe, pricing is starting to stabilize in the snack nut category with prices up 1.6%. Fisher snack performed worse in the category, down 3% in dollars and 11% in pounds. On peanuts, The largest nut type within our Fisher brand, we are continuing to see significant competitive pricing and promotional pressure. We are executing our competitive response by balancing profitable growth and not contributing to devaluation of the peanut category. We have also lost distribution on Fisher's Snacks smaller pack sizes as consumers are looking towards larger value packs.

Speaker 1

We continue to see strong results in the Oven Roasted Never Fried line across our large sizes. We are focused on continuing to build distribution and drive velocities against this line. The Trail and Snack mix segment was up 5% in dollars in Q3 and down 2% in pounds, Relatively consistent with the performance we saw in Q2, prices of trail mixes were up 7.3%, Slightly less than the last quarter. Our Southern Style nut brand declined 5% in dollars 8% in pounds. Declines were solely driven by the club channel as competitive and pricing pressure has increased.

Speaker 1

The brand continues to grow in mass and grocery. Private brands continued to drive the trail mix category growth, up 6% in dollars in Q3. Our last segment produce nuts declined 2% in dollar sales and 5% in pound volume in Q3. This is slightly worse than the performance we saw in Q2. Our produce nut brand or Jabali Harvest declined 14% in dollar sales and 10% in pound sales driven by distribution declines The mass retailer offsetting strong performance in the grocery channel.

Speaker 1

We have started the repositioning and relaunch of this brand as I mentioned, We should start seeing new products flow into the market next quarter. I would now like to turn the call back over to Michelle to open up the line for any Michelle?

Operator

Thank I'm not showing any questions. I'd like to turn the call back over to Jeffrey Sanfilippo for closing remarks.

Speaker 1

Thank you, Michelle. In closing, first, I want to say I'm so proud of this organization and every person that helps support our business. It is an extraordinary quarter. It's been an extraordinary year in spite of the headwinds we face across this country. We also face a number of challenges in the future, which include the impact of ongoing inflation in food and other input prices, rising interest rates that reduce economic growth and the potential for an economic downturn in the markets in which we operate.

Speaker 1

We also continue to experience a tightening in the labor market for those employed at our production facilities, which has led to increased labor costs. However, I am very confident in the strategic investments we have made in our people, customers and capabilities to overcome these challenges and drive future earnings growth. Our company and our team of dedicated leaders and frontline associates Throughout the organization, we remain steadfast and strong. We have always adapted quickly to overcome headwinds. And our insights, innovation, R and D, marketing and sales teams are laser focused on consumer behavior and consumption trends to develop new products and pursue new brand opportunities as well as pursue elevated demand with our private brand retail partners.

Speaker 1

I'm confident we have the right strategies, talent and business model to continue to grow and provide exceptional value and innovation for our customers and consumers. We appreciate your participation in the call and thank you for interest in our company. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
John B. Sanfilippo & Son Q3 2023
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